DEBT CONVERSION AGREEMENT
EXHIBIT
99.1
This Debt
Conversion Agreement (this “Agreement”)
is made as of February 5, 2010 by Lightning Gaming, Inc., a Nevada corporation
(“LGI”);
Lightning Poker, Inc., a Pennsylvania corporation (“LP”
and together with LGI, the “Lightning
Parties”); and Xxxxxxx X. Xxxxxxxxxx, LLC (“Xxxxxxxxxx”
and together with the Lightning Parties, the “Parties,”
and each of the foregoing, a “Party”).
Preliminary
Statements
A. Pursuant
to a Loan Agreement dated June 27, 2007 (the “Loan
Agreement”), LP issued a Promissory Note dated July 2, 2007 (the
“Note”)
in favor of Xxxxxxxxxx in the principal amount of $1,000,000 (the “Principal
Amount”).
B. Pursuant
to an agreement and plan of merger that was consummated on January 29,
2008, LP is a wholly-owned subsidiary of LGI.
C. The
Parties wish to convert the entire Principal Amount into 500,000 shares of
Series A Nonvoting Capital Stock, par value $.001 per share, of LGI (“LGI
Nonvoting Stock”), cancel all accrued and unpaid interest on the Note,
and thereby retire, cancel and fully satisfy LP’s obligations under the Note, on
the terms and conditions set forth herein.
Agreement
NOW,
THEREFORE, the Parties agree as follows:
1. Conversion
and Cancellation of the Note. Effective automatically upon the
execution and delivery of this Agreement by all of the Parties (the “Closing”),
the Note shall be canceled, the Principal Amount shall be converted into 500,000
newly issued and outstanding shares of LGI Nonvoting Stock, and all accrued and
unpaid interest and any and all other amounts payable under the Note (other than
the Principal Amount) shall be automatically extinguished with no liability on
LP’s part, and without the need for any proportionate prepayment of any other
promissory notes issued by LP and held by Xxxxxxxxxx.
2. The
Closing.
(a) At
the Closing, which shall take place at the offices of the Lightning Parties
located at 000 Xxxxxxx Xxxxxxx, Xxxxxxxx, Xxxxxxxxxxxx 00000, the following
actions shall take place simultaneously;
(i) Xxxxxxxxxx
shall deliver the original of the Note to LP for cancellation;
and
(ii) LGI
shall deliver to Xxxxxxxxxx a certificate for 500,000 LGI Nonvoting Shares
registered in Xxxxxxxxxx’x name.
3. Representations
and Warranties of the Lightning Parties. The Lightning Parties
represent and warrant to Xxxxxxxxxx that:
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3.1 Authority. The
Lightning Parties have all requisite corporate power and authority to execute
and deliver this Agreement and consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of the Lightning Parties. The
Lightning Parties have duly executed and delivered this Agreement and, assuming
due authorization, execution and delivery of this Agreement by Xxxxxxxxxx, this
Agreement constitutes a legal, valid and binding obligation of the Lightning
Parties, enforceable against the Lightning Parties in accordance with its terms,
except to the extent that enforceability may be limited by bankruptcy laws or
other laws affecting creditors’ rights generally and by general principles of
equity.
3.2 Capital
Stock. LGI’s authorized capital stock consists of
(i) 10,000,000 shares of Preferred Stock, par value $.001 per share (“Preferred
Stock”), of which 6,000,000 shares to be designated as LGI
Nonvoting Stock having the rights, powers, limitations and restrictions set
forth in a Certificate of Designation to be filed with the Secretary of State of
the State of Nevada upon execution of the Agreement,, a copy of which is
attached hereto as Exhibit A
(the “Certificate
of Designation”); and (ii) 90,000,000 shares of Common Stock, par
value $.001 per share (“Common
Stock”), of which 4,655,285 shares are issued and 4,647,474 shares are
outstanding. Attached Exhibit B represents capitalization of LGI on a
fully diluted basis, giving effect to the transactions contemplated by, and as
of, the Closing. Prior to the Closing, no shares of LGI Nonvoting Stock or any
other series of Preferred Stock have been issued. All 4,647,474 of
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable. Giving effect
to the Closing, 500,000 shares of LGI Nonvoting Stock will be duly authorized,
validly issued, fully paid and non-assessable.
4. Representations
and Warranties of Xxxxxxxxxx. Xxxxxxxxxx represents and
warrants to the Lightning Parties that:
4.1 Authority. Xxxxxxxxxx
has all the power and requisite company authority to execute and deliver this
Agreement and consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Xxxxxxxxxx. Xxxxxxxxxx has duly executed and
delivered this Agreement and, assuming due authorization, execution and delivery
of this Agreement by the Lightning Parties, this Agreement constitutes a legal,
valid and binding obligation of Xxxxxxxxxx, enforceable against Xxxxxxxxxx in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy laws or other laws affecting creditors’ rights generally
and by general principles of equity.
4.2 No
Prior Transfer. Xxxxxxxxxx has not previously transferred any
interest in the Note or incurred any obligation to do so.
4.3 Investment. Xxxxxxxxxx
is acquiring 500,000 shares of LGI Nonvoting Stock pursuant to this Agreement
solely for investment purposes, for Xxxxxxxxxx’x own account and not with a view
to resale or distribution. Xxxxxxxxxx understands that (i) the LGI
Nonvoting Stock has not been registered under the Securities Act of 1933, as
amended (the
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“Securities Act”), or any state securities laws, (ii) LGI is under no obligation to register the LGI Nonvoting Stock and (iii) the LGI Nonvoting Stock cannot be transferred, resold or otherwise disposed of by Xxxxxxxxxx without such registration unless LGI receives an opinion of Xxxxxxxxxx’x counsel, reasonably acceptable to LGI, stating that such transfer, resale or other disposition is exempt from such registration requirements, or other evidence satisfactory to LGI that demonstrates the applicability of such exemption.
4.4 Investment
Qualifications. Xxxxxxxxxx understands that no public market
exists for the LGI Nonvoting Stock, it is uncertain whether a public market will
ever exist for the LGI Nonvoting Stock and the LGI Nonvoting Stock carries no
voting rights and no preferences over the Common Stock. Xxxxxxxxxx
has such knowledge and experience in financial and business matters and
familiarity with the Lightning Parties as to be capable of evaluating the merits
and risks of converting the Note to LGI Nonvoting Stock. Xxxxxxxxxx
has been given the opportunity to ask questions of, and receive answers from,
the Lightning Parties concerning the terms and conditions of, and other matters
pertaining to, the LGI Nonvoting Stock and the related investment risks, and
Xxxxxxxxxx has had access to such financial and other information as it
considered necessary or appropriate to make a decision to convert the Note to
LGI Nonvoting Stock, and Xxxxxxxxxx has availed itself of this opportunity to
the full extent desired. Xxxxxxxxxx is an “accredited investor,” as
defined in Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act.
4.5 Understanding
of Investment Risks. Xxxxxxxxxx acknowledges that an
investment in LGI Nonvoting Stock involves highly speculative
risks. Xxxxxxxxxx has carefully reviewed such risk factors and
considered such factors in relation to its own investment activities and
financial position, and has the ability to accept highly speculative risks,
which could include the loss of its entire investment.
5. Survival. The
representations and warranties in Sections
3 and 4 shall survive the Closing and continue in full force and effect
thereafter.
6. Post-Closing
Cooperation. From and after the Closing, the Parties shall
cooperate with each other and take such actions as may be reasonably requested
and are consistent with the provisions of this Agreement to obtain for the
requesting Party the benefits of the transactions contemplated
hereby.
7. Restrictive
Legend. The certificate for the shares of LGI Nonvoting Stock
issued pursuant to this Agreement shall bear substantially the following
legend:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS (I) REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR (II) PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS AND AN OPINION OF COUNSEL TO THAT EFFECT, IF SO REQUIRED BY THE
ISSUER OF THESE SHARES.
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Any
certificate issued in exchange or substitution for a certificate bearing such
legend (except a new certificate issued upon completion of a public distribution
of the securities represented thereby pursuant to an effective registration
statement under the Act) shall also bear such legend unless it has been
demonstrated to the satisfaction of LGI that the securities represented thereby
need no longer be subject to the foregoing transfer restrictions.
8. Preemptive
Rights.
(a) For
purposes of this Section, the following terms have the following
meanings:
(i) “Board”
means LGI’s board of directors.
(ii) “Common
Stock Equivalents” means all options, warrants, convertible notes and
other securities, obligations, agreements or rights which are exercisable for,
convertible into, or exchangeable for, shares of Common Stock.
(iii) “Covered
Securities” means Voting Securities or Nonvoting Securities.
(iv) “Covered
Transaction” means a sale by LGI of Covered Securities for cash, other
than in any of the following transactions:
(A) a
merger or acquisition approved by the Board, the primary purpose of which is not
to raise equity capital;
(B) a
public offering pursuant to an effective registration statement under the
Securities Act;
(C) a
debt financing, equipment leasing or real property leasing
transaction;
(D) a
strategic, joint venture, marketing, distribution, technology-sharing or similar
agreement that is approved by the Board, the primary purpose of which is not to
raise equity capital; or
(E) pursuant
to an equity incentive plan or arrangement, approved by the Board, for any
employees, officers, directors, agents, consultants or advisors.
(v) “Election
Notification” means written notification by Xxxxxxxxxx of its election to
exercise preemptive rights under paragraph
(b)(i) or (b)(ii) of this Section (as applicable).
(vi) “Nonvoting
Securities” means LGI Nonvoting Stock or Nonvoting Stock
Equivalents.
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(vii) “Nonvoting
Stock Equivalents” means all options, warrants, convertible notes and any
other securities, obligations, agreements or rights which are exercisable for,
convertible into, or exchangeable for, shares of LGI Nonvoting
Stock.
(viii) “Notice
Date” means the date of LGI’s delivery of a Preemptive Rights Notice (as
defined in paragraph
(b) of this Section) to Xxxxxxxxxx.
(ix) “Outstanding
Stock” means the aggregate of all issued and outstanding shares of LGI
Nonvoting Stock and Common Stock.
(x) “Stock
Equivalents” means Nonvoting Stock Equivalents or Common Stock
Equivalents.
(xi) “Voting
Securities” means Common Stock or Common Stock Equivalents.
(b) From
and after the Closing and subject to the terms and conditions specified herein,
Xxxxxxxxxx has preemptive rights with respect to future sales by LGI of Covered
Securities in a Covered Transaction. Each time LGI proposes to sell
any Covered Securities in a Covered Transaction, LGI will deliver a notice
(“Preemptive
Rights Notice”) to Xxxxxxxxxx stating LGI’s intention to sell Covered
Securities, the amount and type of Covered Securities to be sold, the price,
terms and conditions of the proposed sale, and the manner of sale. If
the Covered Securities consist of Nonvoting Securities, then Xxxxxxxxxx shall
have the preemptive rights specified in clause
(i) of this paragraph
(b) to purchase a portion of the Nonvoting Securities specified in the
Preemptive Rights Notice. If the Covered Securities consist of Voting
Securities, then Xxxxxxxxxx shall have the preemptive rights specified in clause
(ii) of this paragraph
(b) to purchase a corresponding amount of Nonvoting
Securities.
(i) By
Election Notification that must be received by LGI within five ( 5)
days after the Notice Date, Xxxxxxxxxx may elect to purchase, at the price and
on the terms and conditions specified in the Preemptive Rights Notice, up to
that amount of Nonvoting Securities that, after giving effect to such purchase
and to LGI’s sale of the remainder of the Nonvoting Securities described in the
Preemptive Rights Notice, would result in Xxxxxxxxxx’x aggregate percentage
ownership of Outstanding Stock, calculated on a fully-diluted basis, being equal
to the percentage that (x) the total number of shares of Outstanding Stock held
of record by Xxxxxxxxxx, calculated on a fully-diluted basis as of the Notice
Date, bears to (y) the total number of shares of Outstanding Stock, calculated
on a fully-diluted basis as of the Notice Date. Xxxxxxxxxx shall
deliver to LGI, not later than five days after timely delivery of the Election
Notification, cash payment for the Nonvoting Securities it is
purchasing.
(ii) By
Election Notification that must be received by LGI within five (5) days after
the Notice Date, Xxxxxxxxxx may elect to purchase up to that amount of Nonvoting
Securities that, after giving effect to such purchase and to LGI’s sale of the
Voting Securities described in the Preemptive Rights Notice, would result in
Xxxxxxxxxx’x aggregate percentage ownership of Outstanding Stock, calculated on
a fully-diluted basis, being equal to the percentage that (x) the total number
of shares of Outstanding Stock held of record by Xxxxxxxxxx, calculated on a
fully-diluted basis as of the Notice Date, bears to (y) the total
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number of shares of Outstanding Stock, calculated on a fully-diluted basis as of the Notice Date. The type of Nonvoting Securities that Xxxxxxxxxx may purchase under this clause (ii) shall correspond to the type of Voting Securities specified in the Preemptive Rights Notice, such that if LGI proposes to sell Common Stock in a Covered Transaction, then Xxxxxxxxxx may purchase LGI Nonvoting Stock and if LGI proposes to sell Common Stock Equivalents in a Covered Transaction, then Xxxxxxxxxx may purchase Nonvoting Stock Equivalents; in either event, the price, terms and conditions applicable to Xxxxxxxxxx’x purchase shall be the same as those specified in the Preemptive Rights Notice (except for the substitution of Nonvoting Securities for Voting Securities). Xxxxxxxxxx shall deliver to LGI, not later than five days after timely delivery of the Election Notification, cash payment for the Nonvoting Securities it is purchasing.
(c) All
calculations of fully-diluted amounts under paragraph
(b) of this Section shall assume the full exercise, conversion or
exchange (as the case may be) of all outstanding Stock Equivalents, regardless
of whether such Stock Equivalents are exercisable or convertible as of the
calculation date.
(d) If
Xxxxxxxxxx has preemptive rights under paragraph
(b)(i) of this Section, then within two (2 ) days after the exercise or
expiration of such rights (as the case may be), LGI may sell the remaining
Nonvoting Securities that were the subject of the Preemptive Rights Notice to
other persons at a price not less than, and on terms and conditions not more
favorable to the purchasers than, the price, terms and conditions specified in
the Preemptive Rights Notice.
(e) If
Xxxxxxxxxx has preemptive rights under paragraph
(b)(ii) of this Section, then within two (2) days after the Notice Date
LGI may sell the Voting Securities that were the subject of the Preemptive
Rights Notice at a price not less than, and on terms and conditions not more
favorable to the purchasers than, the price, terms and conditions specified in
the Preemptive Rights Notice.
(f) Xxxxxxxxxx’x
failure to exercise its preemptive rights hereunder with respect to any sale of
Covered Securities by LGI shall not constitute a waiver of such rights with
respect to subsequent sales of Covered Securities by LGI.
(g) Xxxxxxxxxx’x
rights specified above in this Section 8
shall automatically and permanently terminate if and when Xxxxxxxxxx ceases to
hold of record any Stock Equivalents.
9. Miscellaneous.
9.1 Notices. All
notices, requests, demands and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed given (i) one
business day after being sent by a nationally recognized overnight delivery
service or (ii) upon receipt of electronic or other confirmation of transmission
if sent via facsimile, in each case at the applicable address or facsimile
number (or at such other address or facsimile number for a Party as shall be
specified by like notice) set forth below:
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|
To
either or both of the
|
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Lightning
Parties:
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Lightning
Poker, Inc.
000
Xxxxxxx Xxxxxxx
Xxxxxxxx,
Xxxxxxxxxxxx 00000
Attention:
Chief Executive
Officer
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Copy
to:
|
Xxxxxx
Silver
0000 Xxxxxx Xxxxxx
Xxxxxxx, 0xx
Xxxxx
Xxx Xxxxx, Xxxxxx
00000
Attention: Xxxxxxx
X. Xxxxx, Esq.
Facsimile: (000)
000-0000
|
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To
Xxxxxxxxxx:
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Xxxxxxx X. Xxxxxxxxxx, LLC
0000 Xxxxxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx
Gerenebaum
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9.2 Entire
Agreement; No Effect on Warrant. This Agreement supersedes and
cancels any prior or contemporaneous agreements among the Parties relating to
the subject matter of this Agreement. There are no representations,
agreements, arrangements or understandings between Xxxxxxxxxx and the Lightning
Parties relating to the subject matter of this Agreement that are not fully
expressed herein. This Agreement, however, has no effect on the
Warrant for Stock issued to Xxxxxxxxxx pursuant to the Loan
Agreement.
9.3 Amendment. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the Parties.
9.4 Successors
and Assigns. This Agreement may not be assigned or transferred
by any Party without the prior written consent of the other
Parties. Subject to the foregoing restriction on transfer or
assignment, this Agreement shall be binding upon and inure to the benefit of the
Parties and their successors and permitted assigns.
9.5 Governing
Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Nevada, without
regard to conflict of law principles. Any litigation arising out of
or related to this Agreement shall be instituted and prosecuted only in the
appropriate state or federal court situated in Xxxxx County,
Nevada. Each Party hereby submits to the exclusive jurisdiction and
venue of such courts for purposes of any such action and the enforcement of any
judgment or order arising therefrom. Each Party hereby waives any
right to a change of venue and any and all objections to the jurisdiction of the
state and federal courts located in Xxxxx County, Nevada.
9.6 Interpretation. The
captions of the sections of this Agreement are for convenience and reference
only, and shall not be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of this Agreement.
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9.7 Expenses.
Each Party will bear its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
9.8 Counterparts;
Facsimile Signatures. This Agreement may be executed in
counterparts, each of which shall be considered an original instrument, but all
of which together shall be considered one and the same
agreement. Facsimile copies of the signature page hereof shall be
deemed originals and shall be binding for all purposes.
IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date
first stated above.
| LGI: | LP: | |
| LIGHTNING GAMING, INC., a Nevada corporation | LIGHTNING POKER, INC., a Pennsylvania corporation | |
| By:/s/ Xxxxxx Xxxxxx | By:/s/ Xxxxxx Xxxxxx | |
| Name: Xxxxxx Xxxxxx | Name: Xxxxxx Xxxxxx | |
| Title: Chief Financial Officer | Title: Chief Financial Officer |
XXXXXXXXXX:
Xxxxxxx
X. Xxxxxxxxxx, LLC
By:
/s/
Xxxxxxx X.
Xxxxxxxxxx
Name: Xxxxxxx
X. Xxxxxxxxxx
Title: Manager
CONSENT
OF THE OTHER LENDER:
Other
than Xxxxxxx X. Xxxxxxxxxx, LLC, the undersigned is presently the only Lender
under the Loan Agreement, dated June 27, 2007 the “Loan
Agreement”), among Lightning Poker, Inc. (“LP”)
and the entities and persons listed on Schedule I of the Loan
Agreement. The undersigned consents to the transactions contemplated
by the above Debt Conversion Agreement, without any proportionate prepayment of
any other promissory notes issued by LP.
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THE
CO-INVESTMENT FUND II, L.P.
|
||
| By: | Co-Investment Management II, L.P. | |
| Title: | General Partner | |
| By: | Co-Investment Capital Partners, Inc. | |
| Title: | General Partner | |
| By: | Xxxxx Xxxxxxx | |
| Title: | CFO & Treasurer | |
| Date: |
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EXHIBIT
A
Certificate
of Designation
(Follows
on next page.)
9
EXHIBIT
B
Capitalization
